From hero to zero – Rand goes from the world’s best to world’s worst currency

Up until March 27th, the ZAR was up 11% for the year, which made it the best performing currency in the world.

The March 27 recall of former Finance Minister Pravin Gordhan and subsequent events, however, caused the gains to be reversed. And reverse it did – faster than the Springboks in the IRB world rankings! So much so that it is now the worst performing currency…

Sadly, the bias is for more ZAR weakness – the Rand has traded through its 200 day moving average against the USD and the next key resistance level is 14.00, after which the target moves to 14.40… Of course these are purely based on the technicals.

One saving grace for the ZAR, and one which has certainly prevented further weakness, is that we have seen massive inflows of non-resident capital – over the last couple of weeks, foreigners bought a massive R23bn of SA bonds. It has to be noted that all emerging markets are seeing record inflows.

The Rand has taken the Fitch downgrade in its stride, with the news very much expected and priced into the rate.

With local news remaining on the negative side, although seemingly drying up, our attention refocuses on global issues. Risk aversion set off last week with tension growing between Russia and the US after an US air strike on Syria. Oil and gold prices soared as investors migrated to safer assets.

The USD also strengthened on risk aversion despite poor non-farm payroll figures on Friday where 98k jobs were created against an expectation of 180k.

The deteriorating global conditions caused foreign flows into emerging markets to come to a halt – this will have an effect on the Rand as it touched 13.98 early this morning. The Rand has strengthened back to below 13.90 against the USD but the uncertain global climate will continue to add pressure.

With SARB worried about further Rand weakness, and indirectly inflation, the argument for an interest rate cut is fading away.

While local politics remains the centre of attention but yet not particularly clear, we can also keep an eye out on Chinese CPI and trade data tomorrow and on Thursday, as well US consumer confidence on Thursday.

ZAR FOREX RATE

USDZAR  =  13.9205

GBPZAR  =  17.2815

EURZAR  =  14.7665

AUDZAR  =  10.4447

NZDZAR  =  9.67072

CADZAR  =  10.4488

CHFZAR  =  13.8242